If you run a remote organization, you have the benefit of hiring employees anywhere. Not just where you have an office.
So where should you hire employees?
Each state has different costs to employers through payroll taxes. And different personal taxes that impact employee take home pay.
We built a matrix of all 50 states to compare payroll tax data against individual take-home pay, and this is what we found.
(You can check out the spreadsheet here with all the data.)
There are benefits to global hiring. But, let's forget about international hiring for a minute. And focus on national hiring within the USA.
For smaller & growing companies, this data can help determine which states to focus on in your hiring strategy.
You need to find the right talent. But "pound-for-pound" equal skill employees will cost less in some states vs. others. Employees can also expect a higher take home pay in certain states, influence where they want to live.
It may even make sense to hire a high salary employee in an expensive state, and then incentivize them to move to a low-cost state. They take more money home, you save on taxes, and everyone wins.
So that said, let's break it down.
$40k salary employees
First, let's take a look at lower level employees with a salary of $40k per year. We're talking about entry-level positions and lower leverage work.
You can take a look at the data here to see how the best states rank in terms of lowest overall cost per employee. This is inclusive of payroll taxes, and actual take home pay after personal taxes.
These are the most expensive states. There's a pretty close correlation between cost to the employer and take home pay on both side. With the exceptions of California and Florida.
What does this mean? California isn't the most expensive to the employer. It's middle of the pack. But employees take home the least amount out of all the states due to taxes at the personal level. It's among the lowest yield in terms of take-home from total cost out of all the states.
It's also worth noting that the spreads between the #1 and #50 state are as follows:
- $2,488 in employer payroll taxes. That's 6.22% of the $40k salary
- $1,788 in take home pay. That's 4.47% of the $40k salary
- 6.81% difference in take home as a % of total cost to employer
Put in simple terms, you can expect to pay 6.22% less when hiring in New Hampshire vs. Connecticut. For low margin businesses, or businesses requiring a large number of low cost employees, that could be a big deal.
On the employee side, if you live in California and can work remotely, moving to any of the top 9 states with no income tax will save you $1,788 per year. Some of these states have other tax mechanisms likes sales tax though, so there are some other considerations.
$100k salary employees
The field here is more nuanced.
These are the most expensive states. There's a loose correlation between employer cost and take home pay. Employees get better take home pay in Pennsylvania, New Mexico, Colorado, and Ohio in particular.
These are the least expensive states. Delaware and Hawaii are outliers. But apart from those two, the correlation to low employer and employees taxes are pretty high.
It is worth noting Oregon is much more expensive to employees relative to employer costs.
The spreads between the #1 and #50 state are as follows:
- $5,100 in employer payroll taxes. That's 5.1% of the $100k salary
- $7,620 in take home pay. That's 7.62% of the $100k salary
- 8.52% difference in take home as a % of total cost to employer
At higher income levels, personal income tax starts becomes much higher than employer tax costs. If we increase the salary to $200k or $500k we'll see this spread widen.
What does this imply?
More expensive employees will care a lot more about where they live than you as an employer.
So, you should also discuss primary residence when negotiating salary and benefits while hiring a new employee.
"You're currently living in California, but would you be open to living in Florida, Wyoming, or Texas? You could save almost $6k in taxes, and we'll kick in $2k for the move."
And that's just taxes-- not to mention lower costs of housing, food, etc.
This move would save $4k per year in payroll taxes, per employee.
A remote company can hire anywhere and have employees anywhere. For a more senior hire, the cost of compliance could be less than the tax savings.
Where to hire senior vs. junior
So how do these salary bands stack up against each other?
Generally, the same states that are more cost effective for $100k salary hiring are also cost effective at $40k salaries.
However there are outliers. These states are OK at $100k but expensive at $40k:
- New Jersey
- Rhode Island
- North Carolina
Additionally, looking at population data gives a decent picture of the size of talent market, as you can see here.
Certain states will have a higher proportion of certain skillsets. For example, developers in California or finance professionals in New York. This should shape where you post jobs and look for talent.
For high salary employees, it probably makes more sense to discuss moving from one state to another. The cost savings are higher and there is more cash available to facilitate the move.
Lower salary employees probably need to stay where they already are. But since the skill requirements for these roles are much lower, the talent field is also broader.
Hiring strategy for these employees can focus on lower cost states.
Building remote team hubs
Remote hiring strategy is mainly constrained by cost of compliance.
At smaller team sizes, it's simply too expensive and time consuming to hire people in all different states.
That's why I advocate for a hub-based hiring strategy.
Start with one location and expand as you grow, making use of contractors along the way.
0-20 full time employees (FTEs), you might consider a handful of the best-fit states for your industry and talent needs.
From there to ~250 FTEs, consider the balance between additional compliance and access to talent. You can use PEOs &/or a dynamic internal or external HR team to move quickly with hiring in new states. But it is much easier to simply keep operating in states where you already have a presence.
Offering national mobility across states to employees is a nice perk. i.e. if someone wants to move to a new state, the company will support them and keep them on payroll.
However, remote employers should be careful about this.
It can be a huge pain in the ass to keep compliance for small and growing teams.
- Consider cost of hires when initially looking for talent using this tax data
- For high salary hires, consider negotiating a primary residence move as part of the role
- Choose your hiring hubs wisely based on company needs & talent access
- Be careful about hiring in too many states while growing up to 250 FTEs